Nashville and Davidson County - Metro Water Services

Tennessee

The Metropolitan Government of Nashville and Davidson County – Metro Water Services (MWS) has contracted RFC for three five-year engagements in 2001, 2007, and 2011. During these engagements, RFC has conducted several annual studies for MWS. RFC performs an annual budget review which involves reviewing the adequacy of budgeted revenues to cover projected operating expenses and debt service requirements, particularly with regard to compliance with the rate covenant test defined by their Water and Sewer Revenue Bond Resolution. To supplement the annual budget reviews, RFC performs financial planning studies every three to five years to monitor the need for rate increases and to ensure appropriate debts service coverage.

In 2006, RFC completed a cost of service study for MWS to determine the cost to serve MWS water and sewer retail customers, segregated between specific customer classes. The objective of this analysis was to evaluate whether the then current rate structure, which included separate water and sewer rates and charges for residential and small, medium, and large customer classes, provided for equitable cost recovery from each customer class. The analysis also included a separate calculation of the cost to serve wholesale customers. MWS has eight wastewater wholesale customers that were 201 Participants for regional planning. The contracts that dictated the rates that these customers paid were based on a methodology that was put into place in 1978. RFC worked with MWS to update this methodology taking into consideration financial contributions that were made to MWS by these customers for water and sewer assets used to provide service to the wholesale customers. The result was a consistent methodology for all of the sewer wholesale customers with an adjustment for each customer based on the amount of its prior contributions. This methodology replaced the 1978 trunk and treatment rate methodology.

In addition, as part of the cost of service study, RFC reviewed the methodology used to develop miscellaneous fees such as tap fees, meter inspection fees, and flow test, and provided recommendations for revising fee calculations. Capital recovery fees were also calculated to provide for more equitable cost recovery from new customers connecting to the system.  RFC is currently in the process of updating the cost of service study, in particular the retail rates, miscellaneous fees, and capital recovery fees. 

RFC has also developed a high strength surcharge model for MWS. In the past, MWS was assessing surcharges to industries discharging wastewater with higher concentrations of biochemical oxygen demand and total suspended solids than normal domestic wastewater. MWS was interested in adding a surcharge for nitrogen (as measured by ammonia). In order to calculate an appropriate surcharge, RFC developed a model to determine the per unit (or per pound) cost of treating these parameters. RFC updates this model every two to three years to maintain current high strength surcharges.

RFC has also performed financial feasibility studies as part of MWS’ Series 2002 Revenue Bond offering and the 2010 Revenue Bond offering. The studies were included as part of the official statements to demonstrate the financial sufficiency of the utility system and its ability to support the associated debt service. In addition, RFC has been asked by the Metro Government of Nashville to provide input on MWS’ behalf for additional debt offerings.